Can a Charitable Remainder Trust Be Set Up by a Will?

By Christine Funk, J.D.

Can a Charitable Remainder Trust Be Set Up by a Will?

By Christine Funk, J.D.

A charitable remainder trust can in fact be set up by a will. It essentially operates as an irrevocable trust that generates income for a period of time for designated beneficiaries. After either a specified period of time or significant life event, such as the death of the beneficiary, the remainder of the money left in the account is donated to a charity.

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Charitable Remainder Trusts Established Before Death

Some people choose to set up an irrevocable charitable remainder trust while they are still living. In this situation, it is established and funded by the trustor, or the person who created it. This may occur, for example, by selling an appreciated asset, such as a stock portfolio, and reinvesting the assets into an income generating vehicle. The income then flows to the beneficiary, who could also be the person who established the trust.

In that situation, the individual can designate that the remainder of the money in the account pass to the charity when they pass away, or alternatively, they can designate other beneficiaries to receive the income produced from it after they die. The person who credited it can identify a later event, such as the death of the alternate beneficiary or the passage of a certain number of years, at which time the remainder of what it is passes to charity. If so, they would generally choose which charity they want the money to go to. Similarly, they could name multiple organizations.

Establishing It in a Will

The terms and conditions detailed in one's will do not come into full force and effect until the person passes away. It is possible to set up a charitable remainder trust in one's will. In this situation, the document would instruct the estate's executor (the person chosen to manage the assets of the estate after the individual's death) to establish it with some or all of the assets left.

Ideally, this is or becomes income producing. The people identified in the will as the beneficiaries of the income would receive the funds on a schedule as declared by the author of the will. Again, at some point—either upon the passing of the original beneficiaries or after a certain number of years—the remainder of the money in the account is passed on to the charity designated in the will.

The Various Benefits

There are several benefits to a charitable remainder trust. First, it provides a mechanism to both provide financially for loved ones and give to a charity of your choice. Additionally, there may be considerable tax benefits to establishing it. This can include both avoiding certain estate taxes as well as avoiding capital gains taxes.

If you are considering setting up a charitable remainder trust in your will, understand how it works so that you can ensure your money is going where you want it to after death. You should also research any applicable estate laws in your state to ensure that is drafted and executed properly.

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